Mumbai: The enforcement directorate (ED) has finalized its investigation report on Jaipur IPL Cricket Pvt. Ltd, owner of the Rajasthan Royals Twenty20 cricket team, and is in the process of issuing a show-cause notice to the firm for alleged violations of the Foreign Exchange Management Act (Fema), according to two people familiar with the development.
A show-cause notice is not an indictment. It only requires the company, and a few related entities in this case, to explain their side of the story.
Jaipur IPL has been under the scanner of multiple investigating agencies such as the income-tax department, ED and the Reserve Bank of India (RBI) for alleged violations of Fema as well as foreign direct investment and income-tax norms.
According to the investigating agencies, Jaipur IPL has received money from overseas in violation of Fema norms.
ED has found that Jaipur IPL was formed in March 2008, but the initial payment to the Board of Control for Cricket in India (BCCI) was made by Manoj Badale, through his personal account, on behalf of the consortium of investors led by Emerging Media (IPL) Ltd. Badale is a director for the UK-based Emerging Media (IPL).
Under Fema, a non-resident Indian (NRI) can remit money to a company against shares through normal banking channels.
In this case, the company did not exist when the money was remitted to India.
In response to an email sent to Badale, chairman of Jaipur IPL, a Rajasthan Royals spokesperson denied any violation of Fema norms and said the firm had always taken professional advice on its corporate set-up and foreign exchange transfers.
“Neither we nor our professional advisers are aware of any violation, although the rules around this are quite complex. There was some issue about the initial deposit required to participate in the auction process back in 2007. Any bidder...needed to make a deposit with BCCI within a given time period, which was only days after the tender documents and clarifications were published,” the spokesperson said.
“As we did not have an Indian entity incorporated at the time (as we did not know if we would win or not), we transferred our money from our overseas account directly to BCCI. As we were successful, these were retained by BCCI,” he added.
Declining to comment on the likely response to any show-cause notice that may be issued, the spokesperson said an official communication had been received from ED on 16 June and it is “confident that there have been no such violations and this is pure speculation”.
“As we have (done) with all government agencies already, we will cooperate with the ED fully. Last month, we have met with the ED to assist them with their enquiries,” he said.
According to the spokesperson, Jaipur IPL, formed to run and operate Rajasthan Royals, is fully owned by EM Sporting Holdings, Mauritius.
“The corporate structure was established in accordance with the details provided in the bid submission shortly after the bid. It was not established prior to the bid, as we obviously did not know if the bid would be successful. Moreover, the time allotted between the invitation to tender (27 December 2007) and the bid submission date (23 January 2008) would not have allowed sufficient time to incorporate the intended structure with an Indian entity,” the spokesperson said.
According to the email, the investors agreed to submit the bid using a consortium, led by Emerging Media (IPL) at that time. The other entities in the consortium were disclosed in the bid submission documents.
“Subsequently, on 8 March 2008, an Indian company Jaipur IPL was incorporated, as detailed in the bid submission. We then executed the franchise agreement on 14 April 2008. The ownership of the consortium did not change between the award of the bid on 23 January 2008 and the signing of the franchise agreement on 14 April 2008,” the spokesperson said.
The consortium acquired the team franchise for $67 million (Rs315 crore today), the lowest bid for an Indian Premier League (IPL) team. Early in 2009, Jaipur IPL sold an 11% stake to London-based entrepreneur Raj Kundra and actor Shilpa Shetty in a deal that valued the franchise at $140 million.
According to agencies probing the alleged violations, during this deal, Jaipur IPL did not comply with RBI guidelines on the transfer of shares to persons living overseas. Under Fema norms, the shares of an unlisted firm should be fairly valued by a chartered accountant.
Jaipur IPL declined to comment on the matter saying they “do not comment on matters regarding the valuation” of the franchise, but clarified that it had “obtained approval” for the sale.
As a part of investigations, ED recorded the statement of BCCI secretary N. Srinivasan earlier this month and also asked the board to submit documents related to IPL.
Srinivasan said BCCI has been cooperating with all the investigating agencies. “Whatever they wanted, we have given to them and if there is something in balance, we are in the process of getting it together (for them). I’ve given my statement to them, I cannot comment more on the questions they asked and what I said, as the matter is still being investigated,” he said.